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May 06, 2009

New Administration, Same Result: U.S. Trade Representative's Section 301 Report

U.S. Trade Representative Ron Kirk issued a "Special 301 Report" on April 30. This report, on the state of intellectual property rights worldwide, identifies twelve countries on a "priority watch list" and another 33 on a "watch list," all relating to deficiencies in intellectual property protection in these countries. The Report "guides our efforts to protect American innovation and creativity around the world," according to a press release by the Representative's office, and in these times when "[o]ur creative and innovative products can hit the global marketplace . . . . with just a keystroke," the U.S. and its trading partners must be "vigilant" to protect and enforce intellectual property rights.

The Report is promulgated pursuant to Section 182 of the Trade Act of 1974, as amended by the Omnibus Trade and Competitiveness Act of 1988 and the Uruguay Round Agreements Act (enacted in 1994). The Trade Representative is required under the Act to "identify those countries that deny adequate and effective protection for IPR or deny fair and equitable market access for persons that rely on intellectual property protection." The Trade Representative has implemented these provisions by creating a "Priority Watch List" and "Watch List." Placing a country on the Priority Watch List or Watch List is used to indicate that the country exhibits "particular problems . . . with respect to IPR protection, enforcement, or market access for persons relying on intellectual property." These watch lists are reserved for countries having "the most onerous or egregious acts, policies, or practices and whose acts, policies, or practices have the greatest adverse impact (actual or potential) on the relevant U.S. products."

The Priority Watch List of the report lists China, Russia, Algeria, Argentina, Canada, Chile, India, Indonesia, Israel, Pakistan, Thailand, and Venezuela; this is an upgrade in priority for Algeria, Canada, and Indonesia, who last year were on the Watch List. Countries on this list "do not provide an adequate level of IPR [intellectual property rights] protection or enforcement, or market access to persons relying on intellectual property protection." This year, the Watch List names Belarus, Bolivia, Brazil, Brunei, Columbia, Costa Rica, Czech Republic, Dominican Republic, Ecuador, Egypt, Finland, Greece, Guatemala, Hungary, Italy, Jamaica, Kuwait, Lebanon, Malaysia, Mexico, Norway, Peru, Philippines, Poland, Romania, Saudi Arabia, Spain, Taiwan, Tajikistan, Turkey, Turkmenistan, Ukraine, Uzbekistan, and Vietnam; Brunei (software piracy), and Finland (lack of pharmaceutical product patent protection) are new to the Watch List this year. Korea and Taiwan were removed from the Watch List in this report; significantly, this is the first time that Korea has not been named on either the Priority Watch List or the Watch List.

As in prior years, the majority of the report focuses on software and entertainment piracy. Indeed, this is a major reason for Canada being named on the Priority Watch List, which includes the need for copyright reform as well as "weak border enforcement." The Report also notes that the Canadian government "has not delivered on [its] commitments" to improving IPR protection and enforcement. The Report emphasizes the problem of manufacturing and distributing counterfeit pharmaceuticals, singling out Brazil, China, India, Indonesia, and Russia as countries where such incidents have proliferated while noting that counterfeit pharmaceuticals are sold and distributed in several countries. The report calls "a significant contributing factor" of this problem production of counterfeit bulk active pharmaceutical ingredients (APIs); China is singled out for a "loophole" in its law that permits counterfeit APIs to avoid regulatory oversight merely by not declaring an intention to be used to produce pharmaceutical products. Algeria was added to the Priority Watch List for a law banning "numerous" imported pharmaceuticals and medical devices that prevents access by U.S. companies.

This year, the Report also has a section on "Intellectual Property and Health Policy," specifically relating to the 2001 Doha Declaration on the TRIPS Agreement. The Report states that the U.S. "respects a country's right to protect public health, in particular, to promote access to medicines for all." Accordingly, the Report states that the U.S. "respects our trading partners' rights to grant compulsory licenses" consistent with the provisions of the Doha Declaration, including provisions of the August 2003 agreement whereby countries are permitted to grant such compulsory licenses not only for producing pharmaceuticals for internal use but also for export to countries unable to produce drugs themselves. Interestingly, the Report notes that the U.S. was the first country to formally adopt the provisions incorporating these provisions into the TRIPS agreement, and that two-thirds of WTO members must ratify them by December 31, 2009 in order for them to come into effect.

Immediately following this discussion is a section highlighting efforts by the Representative to support pharmaceutical innovation by "eliminate[ing] market barriers" and to "support . . . innovation" in the pharmaceutical industry, pointing to concerns in the Report about market access barriers in Algeria and Indonesia. Also mentioned in the Report are "concerns" about pharmaceutical regulatory and other policies of Canada, France, Germany, Italy, Japan (specifically with regard to regulatory aspects), New Zealand, and Taiwan. Poland's adoption in 2006 of regulations establishing maximum wholesale and retail prices for imported drugs is also mentioned, as well as urging China to add new drugs to its national formulary (which controls which drugs are available in China).

The report notes positive developments in several countries, including Korea and Taiwan (taken off the Watch List as noted above), China (relating to rebroadcast of the Olympic Games), Russia (for acceding to the WIPO Internet Treaties, and combating software piracy), Chile, Egypt, India (for passing the Drugs and Cosmetics (Amendment) Act in 2008 relating to counterfeit pharmaceuticals), Indonesia, Lebanon, Saudi Arabia, Sweden (for the PirateBay website convictions), and Vietnam. The Report also contains a review of the status of patent and other intellectual property rights country by country for all the countries on these two Watch lists.

Section III of the Report is entitled "Notorious Markets," which sets forth a list of markets on the Internet (in China and Russia) as well as "physical" markets (in China, Russia, Mexico, India, Poland, the Philippines, the Czech Republic, Indonesia, Thailand, and the tri-border region between Paraguay, Brasil, and Argentina) where "[g]lobal piracy and counterfeiting continue to thrive."

The U.S. Trade Representative Report provides insights into both the concerns of U.S. IP rights holders and the administration's intentions to work with, cajole, coerce, or threaten other countries to increase protection for IP rights of U.S. IP rights holders. Western governments have been frustrated, particularly with regard to pharmaceutical products, in implementation of international trade treaties designed to increase IP rights protection. The Report is in some ways the answer to the question, "What are we going to do about it?"